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Welcome to Graham's Public Blogs

These  quick commentaries are written by Graham on events and developments in European politics, finance, economics and budgets. They are part of his pro bono work.  Click through to see how you can support this work.

Continuing Profesional Development Many finance professionals will find that society requires you to be Knowledgeable and Competent when MiFD II comes into force in January 2018. We have launched our CPD Weekly "10 Minute Read 'n Verify" to give 7.5 hours of structured CPD annually. Full Details

(Graham has "his cake and eats it" at the 100th Brussels for Breakfast)

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20 March 2018

“The regulatory treatment of sovereign exposures” Comments by Graham Bishop on BCBS Discussion Paper

This short paper relates solely to the countries that use the euro as their “domestic currency”.  By definition, they are in a fundamentally different relationship with the currency in use in their country compared with all other members of say G10 or OECD. The sovereign states of the Eurozone (EZ) issue their bonds in a currency (i) that they cannot control and (ii) that no single government has the power to instruct the Central Bank to lend it currency to repay its bonds.

This is a constitutionally-entrenched difference with all other major countries where the legislator - with public support – has the power to change legislation and require the central bank to provide monetary finance that can be used to redeem the sovereign state’s bond obligations on schedule.

The discussion paper does not appear to recognize this fundamental - and critical – difference in the nature of the obligations of EZ sovereigns and all others.

This difference has not arisen by accident – it was an integral part of the design of monetary union reflecting the economic history of the participants and the preceding decade or more of very high inflation. In a parallel – and not particularly connected – strand of activity, the 1974 Basel Concordat was being converted into the 1988 Basel I Capital Requirements by the central bankers of the world. [...]

Full article available for Friends and consultancy clients

13 March 2018

Brexit ‘hard facts’ might become insurmountable facts in Ireland - 139th Brussels for Breakfast – CPD Notes

Highlights from the “Brussels for Breakfast” meeting

Now only 381 days until we go over the “cliff” – so the 150th B4B may mark the end of the UK’s EU membership! A lengthy Brexit discussion was inevitable.

Prime Minister May delivered her set-piece policy speech at the Mansion House that had great significance for financial services. On the one hand, she accepted there would be no passporting but on the other hand, called for “mutual recognition” for goods. We had a lengthy discussion on mutual recognition – how it gained prominence in 1992 and the full meaning of Single Market `directives’ being enacted into the laws of each state so that the Commission could launch infringement proceedings if necessary. Nowadays, the supervisory authorities – the ESAs – might take action but the backstop was always actions at the ECJ.

However, this system failed amidst the huge stresses of the GFC and the thrust now is to enact directly applicable Regulations: CRR, MiFIR etc. Coupled with a single supervisor e.g. SSM and a single rule book, financial regulation is well on the way to moving entirely to the European level. Why would EU27 want to go back to the failed system of the 1990s? […]

Key items of the rest of the month:

Theresa May gathered her ‘war cabinet’ at Chequers, the PM’s country house, to try to agree on a single voicefor the Government’s approach to a future trade deal with the European Union. But the model understood to be May’s preferred, the ‘three basket approach’ – under which Britain would in time diverge from some rules while conserving others that would also remain subject to change in future, - had been ruled out from Brussels overnight, as it would breach the bloc’s pledge to forestallcherry-picking. In spite of this categorical negative, the German Chancellor Angela Merkel threw a lifeline to May, suggesting that a bespoke trade deal with the UK didn’t necessarily mean that it was choosing the elements of the single market that suits Britain the most.

The reported agreement among the members of the cabinet, a “managed divergence” based on May’s initial approach, was almost immediately dismissed by Council President Donald Tusk as “pure illusion”, while Irish Taoiseach Leo Varadkar called urgently for a detailed position, saying that the negotiations are at a point “well beyond […] aspirations and principle,” and  top EU negotiator Michel Barnier rebuffed May’s aspiration to be able to reject EU rules during transition.

Barnier outlined the EU’s stance towards Northern Ireland during his presentation of the draft Article 50 Withdrawal Agreement, that seeks to speed up talks: to avoid a hard border in the island that threatens the Good Friday Agreement, "Northern Ireland has to be covered by the Union customs code," he reminded – a plan which had previously triggered a row among British and EU officials and had made Scotland call to be kept as well within the single market. […]


Our Brussels for Breakfast and CPD notes are available for Friends 

Full article including our monthly round-up of key items in Brussels available for consultancy clients

6 March 2018

Temporary Eurobill Fund (TEF): 30 FAQs

The euro area now has an historic opportunity to cement its stability:  the run of elections in the past couple of years has opened a substantial political `window’ that happily coincides with the sun shining on the European economy. The Temporary Eurobill Fund offers a modest, technical but concrete step that can be expanded progressively into a financial, economic and political structure if circumstances develop propitiously. If they do not, then it can easily be wound down again ad extinguished within two years.

This author has developed the TEF plan over several years – now  comprehensively updated in 30 FAQs


Full article available for Friends and consultancy clients

22 February 2018

Building the Brexit castle on a foundation of quicksand: 138th Brussels for Breakfast – CPD Notes

The Brexit shambles in Britain contrast starkly with the neat negotiation strategy in Europe. The EU would welcome back - with relief - UK's membership, but it is moving fast towards new horizons of reform and it has signalled it won't wait for anyone that isn't on board and fully committed. 

Highlights from the “Brussels for Breakfast” meeting

We are now down to 401 days until we go over the Brexit cliff and the UK feels no nearer to laying out the details of what it wants. Perhaps this week’s Cabinet away day will finally reach conclusions but speeches from the Foreign Secretary and DexEU minister provided little clarity – especially after 62 MPs wrote to the Prime Minister setting out their own red lines.

For the financial services industry, the deadline for action is drawing perilously near. But what action? The volume of calls from across the Channel to get on with applications for banking licences grows louder with comments that only a handful of licence have been issued. But it seems that many are under discussion and what about firms that simply want to extend their existing activities? Nonetheless, it was accepted that there would be capacity constraints among EU regulators if there is a last minute rush. [...]

Key items of the rest of the month:

The foundations for the second phase of the Brexit talks have proven not to be very solid. Inspired by UK’s Brexit Secretary David Davis’ motto that “nothing is agreed until everything is agreed”, the top EU Article 50 negotiator Michel Barnier warned British officials against their backtracking in “substantial” agreed principles and flagged the risk for the UK of crashing out of the EU without a transition period in case that the deals achieved weren’t rapidly transposed into law – a major concern for MEPs. The UK Prime Minister has found battle lines in all fronts, with MPs at home calling for more reforms to her Withdrawal Bill. Theresa May faces also distrust among business, with more than two-thirds of companies not confident in Government's ability to negotiate with the EU.  

Under the negotiating directives for transitional arrangements adopted in January’s Council meeting and published by the Commission, Britain will be bound by EU laws but have no say over them, a friction point that May’s administration has tried to fight and that could threaten transition talks. The EU’s stance in this regard might have activated the ‘hard Brexit’ option: senior officials told POLITICO that the British PM plans for an ‘immediate’ break with the EU in trade or financial services after withdrawal, which has raised the EU27’s fears of a ‘bonfire of regulations’ that could undermine the bloc’s economy after divorce and resulted in the publishing of a strategy paper that threatens with sanctions in case of a regulatory ‘race to the bottom.’ Dispute settlement remains a key sticking point for the future trade deal, a Commission’s internal document suggested: a feasible option could be ‘docking’ with the European Free Trade Association (EFTA) Court as a dispute resolution body, wrote POLITICO’s Georgina Wright. [...]

Our Brussels for Breakfast and CPD notes are available for Friends 

Full article including our monthly round-up of key items in Brussels available for consultancy clients

2 February 2018

European Systemic Risk Board (ESRB) on Sovereign Bond Backed Securities (SBBS)

The ESRB has just published its long-awaited reports (Part I and Part II) on SBBS. They are exhaustive and thorough reports on an intellectually attractive idea that was generated in 2011 by the consequences of the Great Financial Crash. The plan is designed to create a new class of “safe assets” via an elegant securitisation of euro area government bonds. The SBBS would be held principally by banks as an alternative to direct holdings – especially of the banks’ domestic government bonds.

The reports analyse in great detail the motivation to create such securities and highlight the necessary condition of often-contentious regulatory change that would be required to make them economically viable. The reports also highlight the usual problem for the tranches of securitisations: who buys the risky, junior tranches?

Perhaps the real problem for SBBS in 2018 is that the concept was originally designed to mitigate a narrow – though important – problem. The arguments today for the much wider solutions offered by a Temporary Eurobill Fund (TEF) remain intact: a safe asset; direct contribution to financial stability; global scale issues of great liquidity; flexible and progressive market discipline to enhance economic governance; and last – but certainly not least politically – a genuine fusion of euro area citizens’ economic interests into a `European asset’ that can be a core savings instrument for all. [...]

Full article available for Friends and consultancy clients

17 January 2018

“How to reconcile risk sharing and market discipline in the euro area”:  Some observations on the new Vox paper

In this fallow period for policy-making while Europe waits for a new German Government (and may yet have to wait even longer for a strong Italian Government), it is welcome that an illustrious group of Franco-German thinkers should publish a Vox paper[1] that outlines a complete, coherent strategy for the Eurozone. As the economic sun shines on Europe – at long last – this is indeed the time to fix the roof!

The authors set out three sound reasons for believing the binary choice between more risk sharing/better incentives is false. The authors specify six areas for reform and this blog reflects on three of them.

My observations link are from the perspective of a market participant who has published a plan for a Temporary Eurobill Fund.

10 January 2018

Graham Bishop elected Vice Chairman of the European Movement (UK)

We are delighted to announce that Graham Bishop was elected Vice Chairman of the European Movement (UK) in December, after being re-elected to serve a third term on the European Movement’s National Council. He was also re-elected recently to the Board of the Kangaroo Group.

9 January 2018

2018: the year of the make-or-break for the Brexit talks

The start of the New Year marked the entry into force of the EU's revamped rules for financial services, MiFID II, and re-set in motion a big headache for European regulators and firms: Brussels and London will have less than 10 months to ink a trade deal and the terms of their new relationship. [...]

Our Brussels for Breakfast and CPD notes are available for Friends 

Full article including our monthly round-up of key items in Brussels available for consultancy clients


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